Investment

The Venture Capital Gender Gap: What Qualifies as Female Content?

There are too few ladies making enterprise capital (VC) funding choices and too few ladies receiving VC investments. In consequence, varied worthwhile initiatives have sought to extend the presence of ladies on either side of the VC equation, particularly amongst these receiving VC funds. However these packages are generally criticized for giving cash to ventures that truly have only a few ladies related to them in any impactful method.

However there’s a answer: a points-based system just like the one the Canadian radio trade makes use of to find out Canadian content material, identified up right here as CanCon.

Easy, clear, and easy-to-understand guidelines round FemCon (feminine content material) will get rid of disagreements over whether or not any given firm qualifies as a worthy, gender-diverse recipient of funds meant to advertise ladies within the area.

To be clear: We don’t want guidelines for corporations with all-female founders, executives, and board members. Neither do we’d like them when there are not any ladies. We want them for the instances in between!

So simply how unhealthy is the VC gender hole? Fairly terrible, and it’s not getting higher. In the United States in 2018, female-founded corporations obtained simply 2.2% of VC {dollars} — the identical because the 12 months earlier than. On the investing side, below 10% of resolution makers at VC companies had been ladies and almost three quarters (74%) of US VC companies didn’t have a single girl investor. In Canada, 15% of VC companions had been ladies in 2018, and female-founded companies receive about 4% of all VC dollars.

The Billion Dollar Fund is one initiative working to channel capital to female-founded start-ups, with plans to switch $100 million to qualifying corporations by 2020 and a billion {dollars} over the subsequent 10 years. X Factor Ventures, a $3 million early-stage fund, can be working on this area. A Canadian authorities program, BDC Capital’s Women in Technology (WIT) Fund, has C$200 million and is investing each straight in “female-led” corporations — extra on the definition of that later — and not directly by allocating cash to rising enterprise funds which have a minimum of one girl companion and have pledged to put money into female-led tech companies.

Whereas concentrating on cash to women-led corporations is an efficient factor, the funds allotted to narrowing the VC gender hole are a drop within the VC bucket. Global VC investment in 2018 totaled $255 billion, with the United States accounting for $131 billion and Canada, C$4 billion. So these funds directed towards plugging the gender hole are a lot lower than 1% of the annual whole and unfold over a number of years.

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What’s the Customary?

What makes an organization girl led? Utilizing the definition from the BDC WIT Fund: “[I]t has a feminine founder, co-founder, CEO or govt driving the path of the enterprise. Executives have to be of their position for at least one 12 months.”

These requirements make sense: We don’t need an organization hiring a token girl on the final minute simply to safe funding, and we don’t wish to put money into an organization that has an all-male board and govt suite however has all its junior roles staffed by ladies. And having one girl on the manager crew is best than none, proper? However nonetheless . . . is the bar excessive sufficient?

A few latest articles say no. Now, earlier than I cite them, I ought to word that I’m not criticizing any of those organizations: They’re good initiatives made up of fine individuals and are merely following the foundations they’ve been given. My level is that we should always deal with making the foundations higher.

The feminist web site LiisBeth — “Area Notes for Feminist Changemakers” — conducted an analysis of the 20 companies that have received BDC WIT money  Whereas a majority did a minimum of a bit greater than the naked minimal, 4 of them barely did that.

Nancy Wilson, the founder and CEO of Canadian Girls’s Chamber of Commerce, raised related factors in regards to the BDC fund in a latest op-ed headlined “What’s a ‘women-led’ company? We need a standard definition.” She proposed setting the next commonplace for investee corporations:

“. . . companies with a minimal of 50-per-cent women-identified possession and a minimal of 50-per-cent administration illustration with senior-level, strategic decision-making skills . . . if a fund is directed to assist ladies in a specific trade, a minimum of one of many ladies in a senior management position have to be ready straight associated to that trade. Within the case of know-how, that requires a girl to be chief govt officer, chief know-how officer or different tech or improvement position on the most senior degree.”

As a former VC, I applaud Wilson’s path, however I feel the bar she units is unrealistically excessive for 2020. The half ladies possession and administration and CEO/CTO commonplace will take a very long time to fulfill and certain implies that BDC can be dreadfully gradual in placing all of its $200 million to work. In April of this 12 months, BDC announced that it had deployed $14 million in the last year. (Though the fund was expanded in 2018, it has been round since 2016, so it isn’t precisely ranging from zero.) At that charge of capital deployment, BDC would wish one other 13 years to take a position the stability of its funds, and that’s assuming the low “a minimum of one girl someplace” commonplace. Setting the bar a lot increased would prolong that time-frame nicely past 13 years.

So is there a center floor?

The CanCon Mannequin

Up till 1971, Canadian musicians had been seldom heard on Canadian radio. So the Canadian Radio-Tv and Telecommunications Fee (CRTC) established guidelines that required stations to dedicate a minimal of 25% of their airtime to Canadian content material, or CanCon. How did these rules define “Canadian content”? They utilized a multi-point system known as MAPL — just like the Canadian flag: cute, eh? Factors had been tallied based mostly on who wrote the Music, the Artist who carried out the piece, the place it was Performed, and who wrote the Lyrics.

So what would a FemCon components appear to be?

FemCon: A Level System to Measure Feminine-Led Corporations

  • Founders/Possession: If a girl invented a product, even when she now not runs the corporate, that must rely for one thing. The identical is true if ladies represent an possession stake of 10% or extra. So let’s give half a degree per feminine founder/proprietor.
  • R&D Crew: Even after a agency is based, numerous work nonetheless must be achieved in R&D. The US average for women in IT roles is slightly below 25%, so no factors ought to be awarded for simply being common. However how about one level for 37.5% and two factors for 50%?
  • Govt Crew: Let’s assign one level per girl, with two factors for CEO.
  • Board of Administrators: Sure, the board issues, however not as a lot because the C-suite. Half a degree per feminine board member sounds about proper.
  • Advisory Board: Advisory board members don’t have any legally binding affect on an organization, however they will nonetheless play a task. We’ll give 1 / 4 level for every girl.
  • If greater than half the staff are ladies, that deserves a degree.
  • If the corporate is particularly engaged on one thing that serves ladies clients or solves an issue for girls, that’s price one other level, perhaps even two.
  • One function of those sorts of packages is to reward not solely female-led start-ups but in addition female-led VC investing companies. So if an organization has obtained materials funding from a feminine funding companion — which means that the precise lead companion who made the financing resolution was a girl — then that will get one other level.
  • If the agency has a mission assertion speaking a few dedication to gender equality and so forth . . . however no feminine founders, engineers, execs, board members, and so forth.? Zero factors. Speak is affordable. Solely motion issues.

Presently, BDC appears to be saying {that a} rating of 1 level is likely to be sufficient to qualify. Equally, the X Issue and Billion Greenback Fund appear to award cash based mostly on a single feminine founder. I agree with LiisBeth and Wilson: That’s not sufficient. So I’ve made the varied point-getting classes as extensive as doable and with some straightforward methods to attain a number of factors.

Ought to 4 factors be the brand new bar? CEO plus CMO, and two board members? CFO, 38% of the R&D crew, two founders, and a female-led VC investor? That raises the bar however retains it inside attain.

The entire above is tweakable, in fact, and nothing is about in stone. However doesn’t the idea look like a believable strategy?

And let“s not depart it at that. Couldn’t such a system be a mannequin for different kinds of range investing? Girls are certainly underrepresented with regards to receiving VC {dollars}. However so are people of color in the United States, particularly African-Individuals and Hispanics. An analogous factors system might work for these teams, too.

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All posts are the opinion of the creator. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially mirror the views of CFA Institute or the creator’s employer.

Picture credit score: ©Getty Photographs/jozefmicic


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Duncan Stewart, CFA

Duncan Stewart, CFA, was an energetic portfolio supervisor from 1993 to 2005, and is now director of know-how, media, and telecommunications analysis for Deloitte Canada. In that position he has researched millennial attitudes to monetary providers and the gender hole for girls in IT.

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